Send a Tweet
Most Popular Choices
Share on Facebook 32 Share on Twitter Printer Friendly Page More Sharing
Exclusive to OpEd News:
OpEdNews Op Eds    H4'ed 9/27/13

In the future there will be no interest on money

By       (Page 1 of 15 pages)   6 comments
Message Bart Klein Ikink

Interest on money causes financial instability and contributes to economic cycles. Governments and central banks try to reduce financial instability and economic cycles. Because of their measures, many people think that they are safe. This introduces a moral hazard because the measures of governments and central banks enable financial institutions to take more risks. Ultimately, this moral hazard weakens the financial system and undermines the value of money. All this happens at the expense of the real economy.

Banning interest on money causes problems because interest on money also reflects the return on capital. Nevertheless, it is possible to have negative nominal-interest rates that do not exceed zero if the value of money can rise. This provides a real return on money that reflects the return on capital. Banking without positive nominal-interest rates can lead to a more efficient economy because interest does not contribute to economic crises any more. The increased efficiency ensures that there will be no interest on money in the future.


Starting point

It has been nearly five years ago since I first published an article about the theory of Natural Money. In short the theory states that money with a holding fee combined with a ban on charging interest could, under specific circumstances, produce a more efficient economy. If this is correct then the implications are far-reaching. Natural Money may become the predominant type of money in the future, simply because it is more efficient. Efficiency is not a matter of desire or preference. Practically nobody wanted capitalism at first, but it emerged as the dominant economic system because it was more efficient. The same may apply to Natural Money.

Five years ago I only had a vague idea about the origin of the superior efficiency of Natural Money, but over time the idea has been developed further into an economic theory that is a good starting point for more research. This report explains where the theory of Natural Money currently stands. The introduction section explains Natural Money in plain terms and gives a few examples from history. Five years ago this was the starting point of my investigations. After the introduction section, the economic theory of Natural Money is explained. This requires considerable economic knowledge. For people who are not interested in the field of finance, it will become boring from that point on.

Natural Money

Compound interest is infinite in the long run. Assume that a 1/10-oz gold coin was put in the bank on interest in the year 1 AD on 4% interest. How much gold would there be in the account by the year 2000? The answer is: 3.6 * 10^31 kilogramme of gold weighing 6,000,000 times the complete mass of the Earth. Compound interest must be paid from debts so they tend to grow until interest payments cannot be met. This is a financial crisis and this often precedes an economic crisis.

Governments try to get the economy on track by spending that increases government debts. Central banks try to solve a crisis by lowering interest rates or printing money. Those measures are meant to offset the effects of compound-interest payments. Without interest on money it may be possible to have a more efficient economic system. If interest on money is to be abolished, how can there be credit and how is it possible to have a return on money that reflects the return on capital? These are questions that have to be answered, otherwise money without interest will not work.

Natural Money is money with a holding fee and a ban on charging interest. By putting money in a savings account, savers are rewarded with not having to pay the holding fee. As interest is a reward for risk, a ban on charging interest will curb risk taking in the financial system and those risks will be taken by investors. The absence of interest on money mitigates economic cycles, which further reduces the risks of banking. In such a situation government and central bank support are not needed.

The twelve steps

In the following twelve steps it is explained how Natural Money can help to create a more efficient economy:
1. It is not allowed to charge interest on Natural Money.
2. There is a tax on holding Natural Money. This is not a tax on wealth, so shares, real estate, and money lent are not subject to this tax.
3. Banks and governments are not allowed to create Natural Money so inflation will stop.
4. The holding fee on Natural Money is an incentive to use the money for investment, consumption, or lending without interest.
5. Because interest is also an allowance for risk and no interest can be charged on Natural Money, the following will happen:
- Money will only be lent to reliable people and companies.
- Less money will be lent and more money will be directly invested in equities and real estate.
6. There will be fewer economic crises as Natural Money will be spent or invested directly and there will be fewer debts.
7. There are fewer economic crises so the economy grows more steadily.
8. As the economy grows steadily, while no additional Natural Money is created, prices will fall.
9. There will be sufficient business activity and work so we can live without fear for economic crises.
10. Improved economic growth causes zero-percent Natural Money loans to have real returns that are better than returns in the interest-based financial system.
11. If Natural Money is applied somewhere, it will cause a capital flight to the interest-free economy because of the higher returns.
12. This will force the rest of the world to adopt Natural Money.

The holding fee, combined with restrictions on credit, appear to make Natural Money efficient. There is a constant stimulus that is sustainable because it is not caused by the expansion of debt. More efficient systems will replace less efficient systems in competition so Natural Money may become the dominant type of money in the future. It seems too good to be true. But is it?

The miracle of Woergl

On July 5, 1932, in the middle of the Great Depression, the Austrian town of Woergl introduced a complementary currency. Woergl was in trouble and was prepared to try anything. Of its population of 4,500, a total of 1,500 people were without a job and 200 families were penniless. The mayor Michael Unterguggenberger had a long list of projects he wanted to accomplish, but there was hardly any money to carry them out. These projects included paving roads, installing streetlights, extending water distribution across the whole town, and planting trees along the streets.

Rather than spending the 40,000 Austrian schillings in the town's coffers to start these projects off, he deposited them in a local savings bank as a guarantee to back the issue of a type of complimentary currency known as stamp scrip. The Woergl money required a monthly stamp to be stuck on all the circulating notes for them to remain valid, amounting to 1% of the each note's value. The money raised was used to run a soup kitchen that fed 220 families.

Nobody wanted to pay the monthly stamps so everyone receiving the notes would spend them as fast as possible. The 40,000-schilling deposit allowed anyone to exchange scrip for 98 percent of its value in schillings but this offer was rarely taken up. Of all the businesses in town, only the railway station and the post office refused to accept the local money. Over the 13-month period the project ran, the council not only carried out all the intended works projects, but also built new houses, a reservoir, a ski jump, and a bridge.

The key to its success was the fast circulation of the scrip money within the local economy, 14 times higher than the Schilling. This in turn increased trade, creating extra employment. At the time of the project, unemployment in Woergl dropped while it rose in the rest of Austria. Six neighbouring villages copied the system successfully. The French Prime Minister, Edouard Daladier, made a special visit to see the 'miracle of Woergl'.

Next Page  1  |  2  |  3  |  4  |  5  |  6  |  7  |  8  |  9  |  10  |  11  |  12  |  13  |  14  |  15

(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).

Valuable 2   Must Read 1   Well Said 1  
Rate It | View Ratings

Bart Klein Ikink Social Media Pages: Facebook page url on login Profile not filled in       Twitter page url on login Profile not filled in       Linkedin page url on login Profile not filled in       Instagram page url on login Profile not filled in

Bart klein Ikink was born in a village in the East of the Netherlands and has lived in this region as a child. He studied Business and Information Technology and Philosophy of Science, Technology and Society in Enschede, which is also in the (more...)

Go To Commenting
The views expressed herein are the sole responsibility of the author and do not necessarily reflect those of this website or its editors.
Writers Guidelines

Contact AuthorContact Author Contact EditorContact Editor Author PageView Authors' Articles
Support OpEdNews

OpEdNews depends upon can't survive without your help.

If you value this article and the work of OpEdNews, please either Donate or Purchase a premium membership.

If you've enjoyed this, sign up for our daily or weekly newsletter to get lots of great progressive content.
Daily Weekly     OpEd News Newsletter
   (Opens new browser window)

Most Popular Articles by this Author:     (View All Most Popular Articles by this Author)

A far more efficient economic system is possible

Multiculturalism Is One Of The Greatest Successes Of All Time

Paradise Found

Financial Stability Hypothesis

A tale of two economic forces

Conversion plan to the natural money financial system

To View Comments or Join the Conversation:

Tell A Friend